Tax Notes Today reports that the United States District Court for the District of Columbia has just handed down Florida Independent Colleges and Universities Risk Management Association, Inc. v. United States, which holds that an association of secondary schools and universities is not entitled to federal income tax exemption because it “provides commercial-type insurance" within the meaning of section 501(m)(1) of the Internal Revenue Code. The association purchases group insurance policies for the benefit of its member institutions and self-insures a certain amount of risk. Relying on Paratransit Insurance Corp. v. Commissioner, 102 T.C. 745 (1994), the court reasoned as follows, in relevant part:

The Court cannot imagine a factual scenario much more similar to Paratransit as the one at issue in this case. [The association], like Paratransit, is a risk pool comprised of section 501(c)(3) exempt organizations that all provide a common service. Both self-insure a baseline amount of risk and purchase reinsurance for excess risk. Both determine member contributions on the basis of each member's unique risk profile. And the arguments made by the non-profit in Paratransit and [the association] here are nearly identical. [The association] does not even try to distinguish Paratransit, merely noting that [it] raises an additional constitutional argument that Paratransit did not. If Paratransit was unable to obtain tax-exempt status, then [the association] must be similarly precluded.

Further finding that the association failed to meet the terms of Code section 501(n), which effectively trumps the exemption-negating effect of section 501(m) in the case of organizations described in Code section 501(n), and rejecting the association's constitutional argument, the court concluded that the association fails to qualify as a tax-exempt organization described in Code section 501(c)(3).